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Debt Articles

Should You Save or Pay Off Debt?

February 3, 2012 | Debt | Education | No Comments

So you have a little extra cash and you are wondering if you should save it or pay off debt.  Paying off debt should be your priority; however, if you have absolutely no savings, you should first try to save at least 3 month, preferable 6 months, of your salary in the bank.  This cash is needed for any emergencies that may come up unexpectedly such as not being able to work due to illness / injury or losing your job.

It’s unfortunate, that over the past 2 decades U.S. citizens have accumulated more debt while saving less. (See chart above). It’s imperative that as soon as you have some cash reserves that you pay off your debt.  For most people this will be credit card debt.  It makes absolutely no sense having your money in the bank making 0.5% in interest while you are paying 15%+ on your credit card balance.  Paying that much in interest is like a leaking facet just wasting water.

If you are contributing money to your 401K or IRA, it’s a good idea to temporarily stop contributing and use that money to pay off your debt.  The interest you will earn in your retirement account will be offset with the high interest you are paying off with your credit card.

If you have multiple credit card, pay off the card with the highest interest first.  Be aggressive by cutting as much expense you can to pay off high interest debt.  If it means cancelling or reducing your cable TV, cell phone, gym membership, eating out, etc., do it.  It will be temporary until you get your debt paid off.  In the long run, you’ll benefit from the temporary sacrifices.

When your financial situation improves, you can then start to contribute to your savings and retirement accounts.  If you pay the minimum due on your credit card debts, it will take you months or years to pay off those debts and you will pay hundreds or thousands of dollars in interest.  

Other techniques you can use to get out debt are:

  • Negotiate with your creditors:  Creditors don’t want you to stop making payments.  If you explain to them that you can no longer afford to pay, they may be willing to lower your monthly payments and/or interest rate.
  • Increase your income:  You may get a second or part-time job or start a side business.  You may also try to gain work extra hours (overtime) at your job.  If your spouse doesn’t work, it maybe a good idea for her/him to find a job.
  • Consolidate your debts:  Debt consolidation is borrowing money at a lower interest rate to pay off higher interest debt to ultimately pay off your debt faster and to save money.
  • Getting help:  There are many nonprofit credit counseling agencies that can help you to develop and maintain your budget.  They may help you set up a debt management plan.
  • File for bankruptcy:  This should be your absolute last option.  However, bankruptcy maybe your best option if your monthly expense are extremely higher than your expenses that it will take decades living on a bare-bones budget to pay off your debt.  You must consult with a bankruptcy attorney to determine if you should file for bankruptcy and which type you should file for (Chapter 13 reorganization which gives you 3-5 years to pay your debts or Chapter 7 liquadation which eliminates most of your debts.

 

If you are looking for a good bank savings account, consider Aurora Bank.   Visit Mymoney.gov for more information to improve your financial literacy and education.

Debt Management May Help Alleviate Debt-Related Depression

January 20, 2012 | Debt | Guest Post | 3 Comments

According to a survey conducted by a non-profit financial crisis center, nearly fifty percent of the people surveyed in debt also experienced or exhibited symptoms of depression. Depression is usually classified as experiencing feelings of inadequacy, hopelessness and other negative behaviors and emotions. The survey also found that nine out of ten participants reported significant feelings of debt-related stress.

Depression can create a feeling of hopelessness and an inability to take on financial problems which leads to a vicious cycle of rising debt and deeper depression. Depression can cause some individuals to become emotionally paralyzed which then leads them to be incapable of developing or following a plan of action to rectify their finances. If this is you, it is highly recommended that you seek help from a debt relief counselor familiar with depression related to debt or see a professional therapist.

However, for many people, they have not yet reached that critical point and are still fully capable of learning new debt management skills. And, for many individuals the depression they are experiencing is simply a phase due to their extraneous debt. As the debt is corrected, the depression lifts. However, all too often, for some, depression leads to suicidal tendencies or attempts. It is essential that anyone experiencing feelings to hurt themselves, the ones they love or other people to seek help as soon as possible. Debt is not worth your life.

Financial stress can feel insurmountable at times whether you have unexpectedly lost your job, stuck in a cycle of late payments or have rising credit card debt. Debt can be detrimental to all areas of your life, but with the right debt management skills and tools, you can get out from under the burden of debt once and for all.

If you are suffering from depression related to debt, one of the best things you can do for yourself is to seek outside help through a debt counselor. Many times, just taking the minimal action of asking for help can make you feel like you are regaining control of your finances and it can begin to ease your depression. Finding help and developing an action plan can help lift those feelings of hopelessness and inadequacy.

Depression can trick your mind into thinking that there is no way out or your debts are so out of control that you will never find a remedy. The important thing to remember is that it is just the depression talking and outside help, especially those experienced in dealing with debt-related depression can help you see what your mind refuses to acknowledge. There are many debt management skills they can teach you that will not only alleviate your current situation, but will help you learn how to avoid ending up in the same place all over again.

Debt should not be a cause of depression, but it is extremely common for those in debt to experience symptoms. Seek help as soon as you find yourself in debt and learn how you can turn your finances around.

Credit Repair, Personal Loans, Debt Reduction Education

October 15, 2011 | Credit Repair | Debt | Education | Personal Loans | No Comments

A new “Education” section has been added to Money-Cake.com to help people looking for information about Credit Repair, Personal Loans and Debt Reduction.  Each Section includes:

   
Credit Repair Education 

 

1 – Introduction to Credit

 

2 – Repairing Your Credit

 

3 – Protecting Your Credit

 

4 – Consumer Credit Laws

 

5 – Resources Extra Resources

 

   
Personal Loans Education  

 

1 – Home Loans

 

2 – Student Loans

 

3 – Personal Loans

4 – Other Loans

 

5 – Resources

 

   
  Debt Reduction Education   

 

1 – Your Debt

 

2 – Your Budget

 

3 – Reducing Your Debt

 

4 – Debt Consolidation

 

5 – Federal Student Loans

 

6 – Avoiding Debt

 

7 – Resources